Rent To Own

Everything You Need to Know About Rent-To-Own Mortgages

Rent-to-own homes offer advantages over other mortgage options. They may help you get the home of your dreams on less than a traditional mortgage, and they may also be the right option for you if you can’t qualify for a mortgage at all. Rent-to-own homes are contracts that you sign, in which you agree to rent the home for an agreed-upon period of time. At the end of the rental period, you can either buy the home for a fixed price or buy it for a fixed price and pay an additional fee for making the purchase. This option appeals to some people because it allows you to get the home of your dreams but with a less-risky investment. However, you should also be aware of some potential pitfalls.

What is a rent-to-own mortgage?

A rent-to-own (RTTO) mortgage is a type of residential mortgage where you make monthly payments to the lender in exchange for the right to buy the home at the end of the contract. The most common form of a rent-to-own contract is the lease option contract, in which you rent a home from a landlord and, at the end of the lease term, buy the home for a predetermined price. Other forms of RTTOs exist, though. For example, you can also rent an apartment that you own freehold, or you can rent a houseboat or a mobile home.

Pros of a rent-to-own mortgage

It’s important to remember that any type of mortgage comes with risks. However, depending on your circumstances, a rent-to-own mortgage may offer some advantages that can outweigh those risks. For example, some qualifying individuals may find that a rent-to-own mortgage is a good option for them because they don’t qualify for a mortgage or because they’re financing a home purchase with cash they don’t want to tie up in a rental property. Or, a rent-to-own mortgage may be a good option for you if you want to make a large, immediate down payment. (A 20% down payment can get you a much more attractive interest rate than a mortgage with 10% down.)

Cons of a rent-to-own mortgage

Just as there are advantages to choosing a rent-to-own mortgage, there are disadvantages, too. For one, since you’re financing a portion of the home purchase via monthly payments, you’ll likely have higher monthly expenses than if you were to make a larger down payment and finance the entire purchase. Similarly, when you own a home in rent-to-own, you’ll likely have a higher mortgage payment than you would with a conventional mortgage. (A larger down payment means a lower mortgage payment.) You’ll also need to factor in potential additional costs, such as maintenance, vacancy, and property insurance. These costs may be higher in some cases because you’re renting a home.

How do you qualify for a rent-to-own mortgage?

If you have a steady income and are able to make monthly payments, there are a few factors that may make you qualify to take out this  mortgage. Perhaps the most important factor is your credit score. To get a good credit score, you need to be able to show the credit bureaus that you’re financially responsible. These mortgages often require good credit, but you may qualify if you have poor credit or no credit at all. (In some cases, lenders will even allow you to purchase a home with no credit score.)

Risks of a rent-to-own mortgage

Just as there are advantages to choosing this mortgage, there are disadvantages, too. For one, since you’re financing a portion of the home purchase via monthly payments, you’ll likely have higher monthly expenses than if you were to make a larger down payment and finance the entire purchase. Similarly, when you own a home in rent-to-own, you’ll likely have a higher mortgage payment than you would with a conventional mortgage. (A larger down payment means a lower mortgage payment.) You’ll also need to factor in potential additional costs, such as maintenance, vacancy, and property insurance. These costs may be higher in some cases because you’re renting a home.

What to consider before choosing a rent-to-own mortgage

There are a number of factors to consider before choosing this mortgage. The first is your expected monthly payment. Since you’ll be making both the mortgage payment and the rent payment, you need to know what your budget allows for each monthly expense. Similarly, you need to be aware of any extra costs that may apply to a rent-to-own contract, such as maintenance, property insurance, and taxes.

Key takeaways

Rent-to-own homes offer advantages over other mortgage options. They may help you get the home of your dreams on less than a traditional mortgage, and they may also be the right option for you if you can’t qualify for a mortgage at all.

There are a number of factors to consider before choosing a this mortgage. The first is your expected monthly payment. Since you’ll be making both the mortgage payment and the rent payment, you need to know what your budget allows for each monthly expense. Similarly, you need to be aware of any extra costs that may apply to a rent-to-own contract, such as maintenance, property insurance, and taxes.

We here at Capital Mortgages look forward to assisting you with Ottawa mortgage needs and approvals. Contact us today by calling us at: 613-228-3888 or email us direct at: info@capitalmortgages.com

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